FAR Sees Report Earnings in Q2, Father or mother Highlights Reverse Mortgage Phase
Finance of America Companies (NYSE: FOA), the parent company of leading reverse mortgage lender Finance of America Reverse (FAR), released its earnings report for the second quarter of 2021 after successfully going public earlier this year, naming its Reverse mortgage branch as the key to its portfolio diversity as well as to the previous record level of sales this year compared to previous years before the IPO.
During the total sales of the entire FOA organization compared to the 1st quarterly profit. The changing dynamics on the futures side led to declines in earnings, but the reverse mortgage segment is less susceptible to such changes, which contributed to its high performance.
Backward pushes FOA forward
FOA CEO Patti Cook describes difficult dynamic in traditional mortgage and lending business, but the diversified portfolio allowed FAR to have a positive impact on the company’s total revenue in the second quarter.
Finance of America CEO Patti Cook
“Our market-leading reverse origination segment achieved a strong increase in earnings contribution in the second quarter,” said Cook in the announcement of FOA’s Q2 results. “It is important that the reverse business correlates less with interest rate developments than the forward mortgage market, and we believe that the segment is well positioned to generate strong and sustainable growth. Baby boomers are increasingly looking to age, and our reverse mortgage products allow this population group to use the equity they have accumulated in their homes to fund or supplement their retirement plans. “
Funded reverse mortgage volume rose to just over $ 1 billion in the second quarter, up 32% each from Q1 2021 and Q2 2020, the highest quarterly volume ever for FAR. Both the financed volume and the total turnover increased, which the company attributes to “a clear tailwind in the reverse origination segment”.
Pre-tax income rose to $ 53 million in the second quarter, an increase of $ 20 million compared to the second quarter of 2020 and an increase of $ 8 million compared to the first quarter of 2021. Reverse mortgage loans that held on to investments Subject to Home Equity Conversion Mortgage (HECM) Backed Securities (HMBS) related obligations at fair value increased from $ 9.9 million in December 2020 to over $ 10.3 million as of June 30, 2021 by one Test.
Reverse mortgage lending also helped contain losses in other businesses, according to Cook.
“Our work segment has not been immune to industry dynamics and we have seen revenue declines that are comparable to our peers. In contrast, we’ve seen significant growth in our Reverse, Commercial and Lending Services segments, ”Cook said on a conference call Thursday morning. “Both reverse and lender services had record sales for the quarter, and taken together, the growth in sales from these three businesses offset some of our decline in mortgage income.”
When the conference call was directed to a segment led by Johan Gericke, CFO of the FOA, the executive named the reverse mortgage segment as the driver of profitability for the entire company.
“[W]We are very proud of the results of our reverse business, ”said Gericke. “Funded volume rose 32% quarter over quarter to $ 1 billion, our highest quarter ever. This resulted in segment revenue of $ 95 million and pre-tax profit of $ 53 million for the second quarter of 2021, up 38% and 18%, respectively, compared to the previous quarter. Reverse segment results also include one-time charges of $ 4 million related to the business combination. “
The growth opportunities specifically in the reverse mortgage industry were further highlighted by Graham Fleming, President of Finance of America Companies.
“Finance of America is a leader in the reverse mortgage industry and has been the leading producer in the wholesale channel for more than a decade,” said Fleming. “The opportunity is to work with industry peers and partners to raise awareness of the product benefits, which leads to greater adoption. Therefore, our focus is on educating seniors about their retirement options and we are well positioned to make home equity an accepted part of prudent, sustainable retirement planning. “
This helps make additional opportunities in the reverse mortgage business both “significant and under-penetrated,” Fleming said, especially given recent estimates that the value of senior home equity is above 8, according to an analysis by National Reverse Mortgage Lenders The association and data analysis company RiskSpan estimate trillions of US dollars.
“Less than 2% of this addressable market has used a reverse mortgage,” said Fleming. “As mentioned earlier, the secular tailwind is inversely related to the increasing senior population, which is growing by 3% annually. Add to this the fact that 90% of seniors want to age on the spot, and it is clear that this presents a significant opportunity to create value for shareholders over time. “
FAR President Kristen Sieffert
The quarter also financed the first EquityAvail, the proprietary hybrid forward / reverse mortgage product launched by FAR earlier this year. When asked for a comment, FAR President Kristen Sieffert commented on the milestones the parent company recognizes in the earnings report and presentation.
“FAR continues to lead the industry. We had a record success with over $ 1 billion in reverse origination in the second quarter – a significant milestone for our company, ”Sieffert said in a statement to RMD. “In the short term, we will continue to focus on educating potential customers about the diverse and holistic solutions that are available to them in retirement, as well as our impressive product benefits and new innovative offerings such as EquityAvail. With this strong foundation and the capabilities of our platform, we are well positioned to meet the strong demand from the growing population of baby boomers seeking access to equity in their homes to help them age. “
Share price suffers due to the forward development
Despite the positive performance the company saw in reverse origination, the market reacted poorly to news of lower origins and earnings in the company’s larger traditional mortgage business. Thursday’s late-day trading caused FOA’s share price to fall nearly 21% in response to lower gains on sales margins and its impact on overall financial results. Total revenue for the quarter was $ 119 million, down 23% from the previous quarter to $ 389 million, largely due to lower traditional mortgage income.
The volume of mortgage loans funded fell nearly $ 7 million, an 18% quarter-over-quarter. Income from sales and other income from mortgage loans held for sale decreased nearly $ 104 million compared to the first quarter of 2021 to $ 187.6 million.
Performance on the forward side may indicate why the FOA wanted to highlight the generally positive performance of the reverse mortgage business, but that doesn’t rule out profits on the reverse side. Time will tell if FAR’s positive results will convince investors in the larger organization.
According to HECM volume data compiled by Reverse Market Insight (RMI), FAR is the third largest lender in the reverse mortgage industry, posting 4,663 on the 12 month ended July 31st.